BrightView Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2022; comparative figures are for the three months ended December 31, 2021 unless otherwise noted. Financial statements are unaudited. BrightView provides commercial landscape maintenance, snow removal, enhancements and development services through its Maintenance Services and Development Services segments.
Financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net service revenue | $655.9 million | $591.8 million | Up 10.8% |
| Gross profit / margin | $147.6 million / 22.5% | $139.9 million / 23.6% | Profit up 5.5%; margin down 110 bps |
| Operating loss | $1.9 million | $8.4 million | Loss narrowed |
| Interest expense | $23.2 million | $9.7 million | Up $13.5 million |
| Net loss / diluted loss per share | $18.9 million / $0.20 | $12.8 million / $0.12 | Loss increased |
| Adjusted EBITDA (non-GAAP) | $48.6 million; 7.4% of revenue | $42.6 million; 7.2% | Up $6.0 million |
| Operating cash flow | $(29.6) million | $(22.4) million | Greater cash outflow |
| Free cash flow (non-GAAP) | $(55.4) million | $(49.9) million | Greater cash outflow |
Revenue growth reflected acquisitions and organic growth. Maintenance Services revenue rose 10.3% to $483.2 million, including a $20.7 million contribution from acquired businesses and $18.2 million more snow-removal revenue, partly reflecting lower snowfall in the prior-year period. Development Services revenue rose 12.7% to $174.4 million, from acquisitions and higher project volume. Segment Adjusted EBITDA margins were 10.5% for Maintenance and 9.5% for Development.
Financial position and liquidity
- At December 31, 2022, cash was $22.4 million, total assets $3,329.7 million, and stockholders’ equity $1,201.3 million.
- Total debt was $1,421.5 million, compared with $1,342.7 million at September 30, 2022. This included a $1,182.7 million Series B term loan, $225.0 million under receivables financing and $24.0 million drawn on the revolving facility.
- The term loan matures in 2029; the $300 million revolving facility matures in 2027. Debt bears variable rates tied to SOFR or an alternate base rate. Management attributed the higher interest expense mainly to increased rates and borrowings.
- Net working capital was $234.1 million, up from $188.7 million at September 30, 2022. Operating cash use and capital expenditures contributed to negative free cash flow; financing cash flow was positive $66.9 million.
- Management said cash flows and availability under the revolving and receivables facilities are expected to fund current obligations, working capital, debt service and capital spending for the next 12 months. The company reported compliance with debt covenants and no default at quarter-end.
Material changes, outlook and risks
- Revenue increased, but gross margin declined, principally due to Development project mix and increased depreciation; lower labor costs as a percentage of revenue partly offset those pressures. SG&A as a percentage of revenue fell to 21.0% from 22.8%.
- Interest expense rose substantially, and net loss widened despite higher Adjusted EBITDA. Adjusted Net Loss was $1.2 million, compared with Adjusted Net Income of $8.2 million in the prior-year quarter.
- The company acquired two businesses for approximately $10.0 million, net of cash acquired. Acquisition purchase-price valuations remained preliminary. The quarter included $2.7 million of business integration costs.
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management notes that interim results are affected by seasonality and weather; revenue and net income have typically been higher in the spring and summer quarters.
- Key risks include inflation and labor, fuel and supply costs; the ability to hire and retain workers and pass costs to customers; interest-rate exposure and substantial debt service; weather and snowfall variability; customer retention and contract profitability; and acquisition integration. Development and enhancement demand may also be affected by construction activity.
- Self-insurance reserves totaled $144.5 million. The company said it was not aware of ordinary-course litigation or claims expected to have a material effect. In January 2023, after quarter-end, it entered into $500 million-notional interest-rate swap and $500 million-notional collar agreements, effective through January 2028.
Important facts for investors to verify
- How variable-rate borrowing costs and the January 2023 hedges affect future interest expense and cash flows.
- Whether revenue growth and segment margins persist after accounting for snowfall comparisons, acquisitions and project mix.
- Whether operating cash flow and free cash flow improve as working capital needs and seasonal activity change.
- Remaining borrowing availability and covenant headroom under the revolving and receivables facilities, including any borrowing-base conditions.
- Final acquisition valuations, integration costs and expected contribution from acquired businesses.